Flashcards in D2C04 Options For Getting Wine To POS Deck (33)
Why are markets for alcoholic beverages seldom totally free?
Government control on sale and distribution:
for tax-raising purposes
To reduce alcohol abuse
Define free market
One in which producers are relatively free to choose whether to sell directly to consumer or retailer or through an intermediary.
If relationship with intermediary or retailer not working, producer can cancel contract and find another route to market
List three types of market
USA three tier system
Define off-premises and on-premises sales
Off-premises: retail, aka "off-trade" in UK
On-premises: hospitality, aka "on-trade" in UK or HoReCa in some markets
List different routes to market (5 ways)
Selling directly to retailers
Appoint a distributor
Establish a joint venture
Use a broker
Selling directly to consumers
Major advantages of selling directly to retailers
> No intermediary costa and margins, maximising profits
> Producers have final say over how wine is marketed, retain control over brand image - not possible with larger retailers or large chains of restaurants
Major disadvantages of selling directly to retailers. How to mitigate?
> Increased administrative burden for producers - time away from vineyards, additional staff, legal compliance in other countries; mitigated if using a freight forwarder.
> Financial risk of lost or damaged wine; mitigated if using a freight forwarder.
> Takes time to build relationship and understand market in foreign countries; mitigated by attending trade fairs and holding tastings in foreign countries.
List three different models for selling directly to retailers
What is a distributor?
Distributor buys wine from a range of producers and sells to a range of retailers.
Generally in the same country as retailers to which they sell.
> May or may not be the same country as producer
> May or may not hold stock of products in portfolio
> May or may not have exclusive rights to import / distribute certain products
Other names for distributor
Major benefits of using distributor
> Knowledge of market: key players, consumer preferences, current trends
> Introducer producer to contacts
> Distributors are aware of different retailers’ requirements and preferences, focus on appropriate markets
> Help with administrative burden
> Absorb risk of lost or damaged wine
> Legal compliance with foreign countries: duty, labelling
> Overcome language barrier
> Can provide product with Increased exposure (e.g. distributor runs tasting)
Disadvantages of using distributors
> Distributor will take a cut of some sort: explicitly reduces profits
> Distributor takes over marketing - lose control over marketing and brand image
> Distributor has a portfolio of products; therefore any given product will not receive undivided attention
> Product may be dropped if not selling in sufficient quantities
> Large distributors may prefer to deal with large producers
Why would companies set up joint venture?
> To save costs particularly in price-sensitive markets
> Greater control over different stages of the supply chain
> Avoid intermediary costs
Major requirements of joint venture
> Companies are at different stages of the supply chain
> Companies are of comparable size (otherwise more of a takeover)
> Contractual arrangements need to be carefully agreed and documented to ensure each party knows their responsibilities and obligations
Give an example of joint venture
UK distributor Mentzendorff has major shareholders as Champagne Bollinger and Fladgatge Partnership, who are not direct competitors
UK distributor Buckingham Schenk and winemaker Herve and DIane Joyaux Fabre create Argentinian wine brand Vinalba, which is sold in multiple countries worldwide
What is a merger?
Two businesses join together to create a business with greater resources and capabilities that should be more competitive than the individual businesses were on their own.
Should be equal partnership in theory.
What is an acquisition?
> Also know as takeover
> When one company buys another company, which then becomes a subsidiary of the purchasing company.
Usually done to acquire capabilities which the purchasing company believes it lacks, creating a more competitive business; or to save small company from going out of business
Benefits of small company in a takeover
Despite loss of control, there is usually increased investment, and new routes to market because of the large distribution networks
How does a broker differ from a distributor?
Distributor is paid by producer to sell wine on its behalf, brokers are independent intermediaries who represent neither party.
Brokers do not enter into any deals, they merely make them happen
Low overheads - smaller fees (2% of the contract price usually)
Benefit of using broker
Intimate knowledge of a particular, often specialized market
Bring together buyer and selling, saving the parties time and effort of seeking each other out
Know wines available and prices willing to sell at
Also know style and volume buyers are looking for and price they are prepared to pay
Describe broker’s role in different contexts
Bordeaux: courtier, have legal status, intermediaries between chateaux and négociants
Bulk wine: ensure correct vats are delivered
Fine wine trade: facilitate deal btw those who buy and sell rare wine
Adv and dis of selling directly to consumers
Additional administrative, logistical and staffing costs
Options for selling directly to consumers
Why are cellar door sales attractive to customers?
The experience: see where the wine is made, tasting, learn the story
Foreign tourists: wine may be unavailable or expensive in their country
Benefits of cellar door sale to producers
> Larger profits
> Engage directly with consumers: good for marketing since there is chance to taste
> Build up brand awareness and loyalty: cellar door customers more likely to buy in the future
> Word-of-mouth marketing
> Trial new products and get feed back - reducing market research cost
Disadvantages of cellar door sales
> Disrupt important work
> Take up space and need to be staffed
>> To overcome some of the issues involved, can set up a cellar door in nearby town
Benefits of event sales to producers
> If in towns and cities with other attractions, they can attract a larger number and wider range of people otherwise not able/willing to visit the winery.
> On the other hand, can see a “Destination effect” in wine regions (e.g. Denbies in UK, Lodi AVA in California).
Downside of event sales to producers
> Producer needs to pay to exhibit wine
> Travel expenses and additional staff
> Direct competition/comparison with other producers is possible for consumer
Features of wine clubs
> Opportunity to purchase wine at reducer price for delivery
> Other benefits such as access to wines not normally available to the general public, free tour, invitation to exclusive tastings
> Provides easy access to wine the consumer enjoys